Small Rise in Home Prices and Mortgage Rates Has Big Effect on Affordability

Filed in Economics by on January 8, 2019 4 Comments

It takes only a small uptick in home prices and mortgage rates to price more than 1 million potential home buyers out of the market for a median-priced home.

For example, $1,000 might sound insignificant when compared to the overall price of a new home. But that relatively small amount has a surprisingly big impact on affordability.

NAHB economists recently determined that for every $1,000 increase in the cost of today’s median U.S. home price, 127,560 American households are priced out and would no longer be able to afford it. In other words, based on their incomes, 127,560 households would be able to qualify for a mortgage to purchase the home before the price increase, but not afterward.

Those numbers are even more staggering when looking at potential interest rate increases. It takes only a quarter-point rise in the rate for a 30-year fixed-rate mortgage to price approximately 1 million households out of that segment of the market and force them to set their sights lower than a median-priced home –- or delay their home purchase altogether.

NAHB economist Na Zhao provides further analysis in this Eye on Housing blog post.

More information, including priced out estimates for every state and over 300 metropolitan areas, and additional details about the methodology of the study, are available here.

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  1. Armando Cobo says:

    The important thing to know is WHERE those $1k were spent. If used to buy fancier entry door, a bigger stove, or fancier flooring, then it maybe a waste, but if is properly used for energy efficiency and quality construction, it maybe worthwhile, specially if used together with rebates, energy efficient mortgages, and the Appraisal Institutes form 820.04 by a qualified appraiser, which few people know about.
    Maybe an NAHB study of climate zone and quality construction costs would give different results. $1k in CZ6 provides grater savings than $1k in CZ2, and $1k spent on making a house 1ACH50, would give better results than a house with 7ACH50.

    • Rhonda Carlson says:

      Sadly, your comments regarding energy efficiency will not help our companies clientele. Our municipalities require quite stringent energy standards. Some that when cost factored into the energy savings can take 25 to 30 years to pay back assuming all things remain the same. Our customers are not buying a new door or even expensive flooring, they are not even keeping up with the cost of goods and materials. Higher priced homes have a better chance to absorb these expenses but when a starter home is unattainable we are setting ourselves up for failure.

  2. Armando Cobo says:

    As a DOE’s Zero Energy Ready Home program Instructor and Designer in several States and Climate Zones, all of my clients cost increases are between 0-3%, including a “learning curve” new Builders have to go thru. Perhaps more education, better planning and detailing would help other builders achieve the same.
    Here is a Rock Mountain Institute study supporting my views… you can download the file here – https://www.rmi.org/insight/economics-of-zero-energy-homes/
    Also, there is plenty of information supported by the DOE’s ZERH Program’s Tour of Zero… a collection of ZER homes across the country by dozens of builders, from custom, production and affordable housing. – https://www.energy.gov/eere/buildings/doe-tour-zero
    Just because a Builder has not figured out how to get it done, doesn’t mean it hasn’t been done!

  3. Harry crowell says:

    These costs are misinformed. When the builder pays $1,000 the homebuyer pays up to $1,400 for the house for the sale price includes a lot of other costs that are based on the actual sale price so they need to add on more insurance, escrow, sales commission, points and interest, long term insurance for warranty, extra time for, advertising sales and marketing and several other things adding up to about 30-40 %. These seem to be neglected by front end costs.

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